Best Ethanol Stocks In India 2024

India’s ethanol industry has grown manifold since government mandated its mandatory blending with automobile fuels. From just 1.5% blending target from 2005-14, it was moved to 10% during 2014-22. As the 20% target sets in from 2025, ethanol demand is expected to increase to 1,016 crore litres, making the worth of the ethanol industry jump by over 500% from around Rs 9,000 crore to over Rs 50,000 crore, according to the government’s projections.

Ethanol Industry in India

Ethanol production in India relies mainly on sugarcane, maize, and other materials rich in cellulose. It is widely used as a fuel additive in the transportation sector, blending with petrol and diesel to create a renewable alternative that helps reduce emissions. Additionally, ethanol plays a crucial role in the alcohol industry, produced through the fermentation of sugar present in sugarcane, grains, and fruits, which contributes to the alcoholic content in beverages.

Beyond its use as a fuel and in alcoholic beverages, ethanol is integral to various other industries, such as pharmaceuticals, cosmetics, paints, personal care products, cleaning agents, and plastics, demonstrating its versatile applications. The use of ethanol as a fuel dates back to the early 1900s, primarily to enhance fuel quality and reduce pollution. In the 1970s, India began producing ethanol from sugarcane for industrial use, but it wasn’t until the early 2000s that the government recognised ethanol’s potential as a renewable fuel. Since then, the production and usage of ethanol in India have been on the rise, driven by increasing demand for biofuels and alcoholic beverages.

Recently, India has achieved a 15% ethanol blending rate in its fuel mix by May 2024, with plans to raise this to 20% by 2025, ahead of the original 2030 target set by the National Policy on Biofuel (NPB), 2018. To meet this goal, oil marketing companies are encouraged to procure ethanol from molasses, sugarcane juice, surplus food grains, and agricultural waste.

India’s ethanol market was valued at $6.51 billion in 2023 and is expected to grow to $10.45 billion by 2029, reflecting a CAGR of 8.84%. This growth is bolstered by the government’s push towards ethanol-blended fuels, rising agricultural investments, and supportive government incentives, positioning ethanol as a key driver of India’s renewable energy transition and economic growth.
 

Performance Overview of Top Ethanol Stocks

Top 5 Ethanol Stocks with High Potential

What Are Ethanol Stocks? 

In India, ethanol is mostly produced by sugar makers, many of which are listed on stock exchanges. These ethanol stocks offer investors an opportunity to be part of the India’s ethanol growth story. Their fortunes closely follow the government’s ethanol blending programme and sugar prices.  Ethanol stocks have seen upswing in their fortunes as oil marketing companies have increased their purchases of the biofuel. 

List of Top 5 Ethanol Stocks In India

Bajaj Hindusthan Sugar: The Mumbai-based company is India's leading sugar and ethanol manufacturer. It has an aggregate sugarcane crushing capacity of 136,000 tonnes per day and industrial alcohol including ethanol distillation capacity of 800 kilo litre per day.

The book value per share has improved over the past two years and so have the company’s financials. However, increased promoter share pledge remains key risk. 

Shree Renuka Sugars: Owned by the Singapore-based Wilmar Group, Shree Renuka Sugars recently expanded its ethanol capacity to 1,250 kilo litres per day.

The company has low PE ratio giving the stock a good entry time. The stock has also seen rising interest from FPIs due to low promoter pledge and improving cash flows. High interest payment, however, remains a red flag. 

Triveni Engineering and Industries:  The company is expanding its ethanol production capacity to 1,100 kilo litre per day from 660 kilo liter per day currently. 

The stock has been under pressure lately due to weak financial, margins, and a fall in RoCE over the last two years. EPS, however, has shown some promise. The company also has low debt and promoter pledge. 

Balrampur Chini: The company has ethanol production capacity of 1,050 kilo litres per day through four distilleries at Balrampur, Babhnan, Mankapur Gularia, and the recently-added distillery at its Maizapur unit.

The stock is under pressure lately due to declining RoCE and ROE. The stock price is below short-, medium- and long-term averages. However, it also has low PE ratio currently.  

Bannari Amman Sugar:  Among India's top producers of sugar is Bannari Amman Sugars Limited. There are three sugar factories located in Tamilnadu and two sugar factories located in Karnataka that have cogeneration units. It has two distillery locations: one in Karnataka and one in Tamilnadu. In Tamilnadu, there is a Granite Processing facility. Additionally, the corporation has windmills in Tamilnadu's southern region.

Overview of Ethanol Industry In India 2024

With the target for 20% ethanol blending approaching next year, 2024 seems to be promising year for ethanol stocks. ethanol, a renewable and sustainable biofuel, is gaining prominence as a cleaner alternative to traditional fossil fuels. The government is trying to cut its reliance on imported crude oil and ethanol is the best fit for this. These stocks can also become ESG compliant, helping bring foreign funds. The factors to watch out for could be lower production of sugarcane that can force the government to divert more production to sugar. 

How to Invest in Ethanol Stocks in India?

Here are some ways to invest in Ethanol stocks in India:

1. Access Ethanol Shares Through Online Brokerages
Retail investors can gain exposure to leading Indian ethanol producers by opening a brokerage account that allows equity purchases on the nation’s stock exchanges. Researching ethanol manufacturing and biofuel companies can identify attractive investment opportunities for those interested in the renewable energy space.

2. Consider Direct Private Equity Participation
High net worth individuals may invest directly in unlisted ethanol startups or growth companies through private equity funds focused on the sector. This channel enables larger capital allocation to handpicked players but has more restrictive entry barriers.

3. Utilise Specialised Alternative Energy ETF Offerings
Exchange-traded funds concentrated on alternative or renewable energy provide a diversified, low-cost avenue to gain equity participation in major Indian ethanol stocks. The pooled structure grants easy access for those looking to tap into the ethanol industry’s potential in an index-based format.
 

Factors To Consider Before Investing In Top Ethanol Stocks In India 

While ethanol stocks do present a lucrative investment opportunity, there are several factors to consider before investing in them.  These include the following: 

Financials: Check the fundamentals of the ethanol company that you plan to invest in carefully. The company’s balance sheet and cash flow statement need careful analysed for debt, promoter share pledge, free cash etc. 

Technical: If the valuation of an ethanol company is already very high, then one should be careful about investing in it. One should also look at other factors such as moving averages, support and resistance for each stock before investment decision.

Regulatory issues: Sugar is one of the most regulated commodity in India. As most ethanol producers are sugar mills, investors should keep abreast of the changes in regulations regarding the sweetener, sugarcane production etc. 

Feedstock: Analyze the sources of feedstock used for ethanol production. Companies with diversified and sustainable feedstock supply chains are better positioned for stability.

Oil market: The fortunes of ethanol stocks are closely linked to oil markets as the main consumers of ethanol are oil marketing companies. 

ESG: Ethanol stocks often appeal to environmentally-conscious investors. Assess the companies' commitment to sustainability and their efforts to reduce carbon emissions and corporate governance.

Competition: The oil marketing companies buy ethanol through auction. Ethanol stocks with good margins will always be able to get better of peers when it comes to sales. 

Advantages Of Investing In Ethanol Stocks 

Investing in ethanol stocks can offer several advantages, such as:

Renewable Energy growth: Focus on lowering carbon emissions has intensified, leading to higher demand for renewable energy sources like ethanol. 

ESG: Many funds are now investing in stocks that are compliant with ESG norms. Ethanol stocks tick at least one of the boxes. 

Government support: Indian government has been backing increase in ethanol blending in auto fuels to cut reliance on import of crude oil. 

Hedge: Since ethanol is an alternative to petroleum-based fuels, investing in ethanol stocks can serve as a hedge against volatility in the oil market.

Global expansion: Exports are now emerging to be viable market for Indian ethanol makers as they reduce costs and expand production capacity.

Challenges And Risks In Investing In Ethanol Stocks 

Investing in ethanol stocks, while offering potential advantages, also comes with various challenges and risks:

Commodity Price: Ethanol prices are closely linked to the prices of commodities like corn sugarcane and sugar. 

Oil prices: If prices of oil were to fall, the reason to blend biofuels will get blunted. 

Regulatory risks: The ethanol industry is heavily influenced by the Indian government policies and regulations, including subsidies and biofuel mandates.

Competitive: More and more sugar companies are getting into ethanol production leading to crowding in the sector. 

Investors in ethanol stocks must take these risks before investing their funds in ethanol stocks 

Why Invest in Ethanol Stocks?

Investing in ethanol production companies can diversify an investment portfolio beyond traditional asset classes. As a commodity-driven sector, ethanol stocks behave differently than regular equities, providing some insulation against stock market volatility.

Additionally, commodities like ethanol tend to appreciate during times of rising inflation. Ethanol prices typically track moves in broader inflation rates. By investing in top ethanol stocks in India, investors can maintain better purchasing power over their capital as inflation elevates, unlike fixed income assets that lose real value.

The unique properties of ethanol shares as an alternative commodity allow investors to mitigate portfolio risk through diversification while also harnessing ethanol's inflation-hedging abilities. Adding exposure to ethanol producers and manufacturers can realize these dual benefits.
 

Conclusion

Ethanol stocks present presents a unique opportunity in India due to the government-led demand and its rising stature of the renewable energy sector. While ethanol stocks do offer potential for growth, they also require careful consideration of inherent risks and market dynamics due its close linkage with sugar sector and highly volatile oil prices.